MANAGEMENT ACCOUNTING & CONTROL

VARIABLE COSTING

Lesson Activity 7. Variable & Fixed Costs

Tricia is a management accountant in an organization. She has been

assigned the task of budgeting payroll costs for the next quarter.

Payroll information of the last 4 quarters is as follows:

Quarte Work Hours Cost in Php

r
1 15,000 400,000
2 20,000 480,000
3 18,000 440,000
4 21,000 500,000

The organization increments salaries and wages by 10% at the start of the
3rd quarter each year. Twenty-three thousand (23,000) hours are expected to be
worked in the first quarter of the next year.

Required: Calculate the following:

1. Variable Cost per Unit
Answer: Php 10.00
2. Fixed Cost
Answer: Php 290,000
3. Total Variable Costs
Answer: Php 230,000
Computation:
Highest activity level is 21,000 hours in Q4
Lowest activity level is 15,000 hours in Q1

*Adjusted Payroll Cost of Q1: 400,000 x 1.10 = Php 440,000

Variable Cost per Unit:
= (500,000 – 440,000) ÷ (21,000 – 15,000)
= Php 10

Fixed Cost:
= 500,000 – (10 x 21,000)
= Php 290,000

Total variable cost:

= 10 x 23,000
= Php 230,000